Goldman Sachs is sticking with its $2,700 an ounce price target for gold but said investors should be wary of the possibility of a 25-basis-point cut during today’s scheduled FOMC meeting.
Last week, gold appeared to price in the possibility of a 50-basis-point rate cut after traders reversed course on speculation surrounding the Fed’s policy moving forward. Earlier that week, traders were pricing in an 85% chance to see a quarter-point cut, which later plummeted as speculation began to suggest the Fed was considering a half-point cut.
“While we see some tactical downside to gold prices under our economists’ base cage of a 25-basis-point Fed cut on Wednesday, we expect a gradual boost to ETF holdings — and thus gold prices — from the Fed’s easing cycle,” the Goldman analysts said.
Sound familiar?
The Goldman prediction mirrored similar sentiment from Blue Line Futures Chief Market Strategist Phil Streible, who told the Jerusalem Post on Monday he expects a 25-basis-point cut and to see some near-term pullback in precious metals — though his firm continues to target $2,750 an ounce by year’s end.
Both Goldman analysts and Streible believe a 25-basis-point cut is the Fed’s best option, citing beliefs that the economy is not showing enough signs of turmoil to start an easing cycle with such a large reduction.
Last update for FedWatch
The CME FedWatch tool, which uses bond-market data to show what size rate cut traders are pricing in, shows a 61% chance of the larger 50-basis-point cut and a 39% chance for the more minor reduction.
The FOMC is set to meet at 2 p.m. EDT today.
Gold and silver prices have traded relatively flat over the 24 hours preceding the upcoming meeting, with gold holding steady around the $2,575 range and silver hovering at the $30.55 an ounce mark.